I was at the AGM of Powermatic last week. Its not a well known company, but has a small following among the value investing community so I thought a write a post on it.

They operate in tough industry – and have done as well as anyone could have done faced with a similar situation. They’ve had 9 year of straight profits, and have paid dividends for the last 8 years which is impressive by my standards for a company listed on the SGX.

I had a chat with management after the AGM. They strike me as honest, down to earth people with an understanding of the current situation that the company faces. They have a vested interest in seeing the company succeed and turn its fortunes, with Dr Chen Mun & Ms Ang Bee Yan owning 64% of the shares.

So what makes Powermatic interesting?

What really strikes me is that Powermatic trades at 0.7x book value. There are many companies that trade at a huge discount to their book value, but plenty of them have assets which by measure are hard to value (intangibles, property, plant and equipment specific to their industry etc).

Powermatic on the other hand has a significant portion of its book value in current assets, and a freehold investment property that is stated at $18.6 million. 

Footnote details their investment property at  7,9 Harrison Lane. However, read deeper, and you will see that the property is in fact worth significantly more based on a independent valuation by Knight Frank, and is worth $35 million at the 31st of March 2014.

In order words, Powermatic really trades at 0.5x its book value.

More importantly, the property is freehold and not leasehold, making it all the more valuable. Rusmin Ang from the Fifth Person was kind enough to send me an interesting article on freehold industrial property, which you can check out here.

Here’s the relevant bit:

“The freehold property is a “rare commodity for an industrial site as most buildings released by JTC are on a 20-year lease”, said Ms Christina Sim, the director of investment (capital markets) at Cushman & Wakefield.”

Diving Deeper Into Their Balance Sheet

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Now I was quite curious about the make-up of the Thailand portfolio, but unfortunately wasn’t able to get more information on it.  Mr Yee Lat Shing, one of the directors who seems like a seasoned investor himself from his comments), has said that the equities are reasonably priced, and offer an attractive return going forward.

Still, I have my reservations given the considerable run-up in price of close to 60% in a year, and I wish the board had been more forthcoming about the portfolio.

A Closer Look at Remuneration Levels

ScreenClipA glance at their remuneration reveals that they are by comparison, very lowly paid compared to most boards in Singapore, with most of their remuneration coming in by way of dividends. This is an exceedingly fair arrangement if you compare it to most other listed companies in a similar position, with management taking ridiculous salaries despite the business going down hill (a story for another day).

Conclusion:

Part 1 concludes some of the “hidden value” that lies in Powermatic, and some points that I noted while running through its Annual Report. The next post will cover what I think Powermatic is worth, and why its a compelling investment opportunity.